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Yintech Investment Holdings Limited (YIN)
Q1Â 2019 Earnings Call
May 31, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone and welcome to the Q1 2019 Yintech Investment Holdings Limited Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions)
And please note that today's event is being recorded. And I would now like to turn the conference over to Yvonne Young, Investor Relations Director. Please go ahead.
Yvonne Young -- Director of Investor Relations
Thank you, William. Hello, everyone. Thank you, and welcome to Yintech First Quarter 2019 Earnings Conference Call. Our earnings release was released earlier today and is now available on our IR website.
On the call today from Yintech are Mr. Wenbin Chen, Chairman and CEO and CFO; and myself, Yvonne Young. Mr. Chen will review business operations and Company highlights, followed by myself. I would go over the financials and guidance on behalf of Mr. Chen. We will both be available to answer your questions during the Q&A session that follows.
Questions can be asked in English or Chinese. If you ask your questions in Chinese, please translate into English yourself afterwards. Before beginning, we would like to remind you that discussions during the call contain forward looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Such statements are subject to risk, uncertainties and factors that may cause actual results to differ materially from those contained in any such statements.
Further information regarding potential risks, uncertainties or factors is included in Yintech's filings with the US Securities and Exchange Commission. Yintech does not undertake any obligation to update any forward-looking statements, except as required under the applicable law.
During this call, we will be referring to several non-GAAP financial measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release.
I will now turn the call over to Mr. Wenbin Chen. Mr. Chen will give his remarks in Chinese, and I will translate for him. Thank you. Mr. Chen go ahead.
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer, and Chief Financial Officer
(Foreign Language) Welcome to the first quarter of fiscal 2019 earnings conference call. Q1 2019 was a landmark quarter for Yintech. Highlighted by record net revenues and profitable growth for the first time since we made transition to the comprehensive financial service provider, almost two years. Thanks to a number of business, environmental and industrial tailwinds.
(Foreign Language) The equity markets garnered momentum during the quarter, with China A shares rising over 30%, delivering its highest increase in the past three years, and S&P 500 posted best first quarter since 1998. Benefiting from the market rally, heightened investor activity and our ability to capitalize on the market opportunities, we demonstrated growing strength in RMB asset management, corporate treasury management as well as client engagements for our overseas securities services. All of this improvement contributed significantly to our top line and bottom line growth.
(Foreign Language) In the first quarter, we earned revenues of RMB454 million, up 69.2% year-over-year and 53.9% sequentially, 37.7% to 22.8% higher than our previous guidance of RMB330 million to RMB370 million. Excluding trading gains, net revenues reached RMB267.2 million, as compared to our previous guidance of RMB222 million to RMB240 million. We also achieved the strong profitability of non-GAAP net income of RMB85.6 million and non-GAAP EPS of RMB1.14. The strength of these results more than offset the slight decline in commodity trading revenues.
(Foreign Language) In the first quarter, our asset management business, not only delivered outstanding results to both top line and bottom line growth, evidenced than by vast majority of the total revenue RMB187 million trading gains, but also continues its remarkable performance and gaining greater industry recognition. In total, our asset management team received 13 high rankings in various competition in the single quarter. To name a few, according to civil law (ph) it was ranked number five of the top 10 equity-oriented private equity companies for the first two months of '19 -- 2019 among over 10,000 peers of similar size in China. And the ranking was further lifted to number three for the first three months. Our convertible securities funds also delivered outstanding results. One of which was rated number six in February and remained top 10 in the fourth quarter out of 1,500 PE competitors.
(Foreign Language)
We're proud of the phenomenal success, given the asset management business was only in the -- in its third year of operation. We see this recognition as an affirmation of our emphasis on professionalism, value, service, and honesty as we attract and support a growing share of China investable wealth. We already saw initial success more into investment stability than market, giving its consistent performance. On average, our equity funds and convertible securities bonds largely outperformed SCI 300 index and other major comparable indexes. We believe our investment insights and skills will continue to convert to financial performance as well as business growth in the mid-to-long run.
(Foreign Language) Client experience remains paramount to all that we do. Under the mission of leveraging our expertise, technology, and people to bring greater ease, knowledge, fun and accessibility to investment and trading to investors, we remain steadfast in enhancing the client experience. We have created a team within our Fintech innovation lab, solely focuses on innovation of quantitative trading and artificial intelligence. The team works across our five business lines, aligning the business partners on AI driven technology to develop qualitative application software, which seeks to offer accessible value-added products and services to our clients.
(Foreign Language)
Our Fintech innovation lab rounded out our value-add services continuum in the first quarter with the completion of Intelligent Investor, compelling stock screening software, focusing on finding undervalued stock against its intrinsic value. Additionally, our advanced technology efforts, such as Stock Profiling, a 360 degree stock analysis application targeting A share, Hong Kong and US stocks, are gaining traction with clients, and we'll continue to expand the ways in which our clients can interact with us online, bringing more enjoyment and ultimately more gains to clients and the Company.
(Foreign Language) Strategically, we're expected to see potential benefits of our successful acquisition, acquiring of Type 2 and Type 5 regulatory licenses from the Hong Kong Securities and Futures Commission, which permitted Forthright Securities, our fully owned subsidiary company to deal in futures and advise on futures contracts. In securing these licenses, our clients can trade multiple asset classes including securities and futures and continue to rely on our leading technology and trading expertise combined with specialist in-depth insight into the securities and futures industry, which is an important component of our value proposition.
This new business area put us in the better position and allow us for greatly enhanced services that will benefit a range of investors.
(Foreign Language)
It is really (ph) important that we continue to push ourselves to run more easily as we evolve our business in light of new demand, in the face of new market competition, market environment. While most of our efforts have been through technology and internal process enhancement, being able to stop doing things when they have not delivered the right results in the cost we expect is just as important to improve operational efficiency and resiliency.
In the first quarter, we continued to streamline our business. As part of our efforts, we terminated contracts with some employees and stopped (ph) certain projects, which did not perform well, and combined the results and remaining productivity -- productive members into our existing projects and teams. This was another step forward in implementing our strategy of being a leaner Company. We are sure this effort will have to improve productivity and accelerating our growth pace.
(Foreign Language) Beginning (ph) in late April and early May, we witnessed a spike in volatility, including a substantial decline in major indexes in A share and S&P 500, due to panic over China and US trade war among other sectors. This market event will have a significant impact on investments are sensitive to volatility in an increasingly dynamic market environment like the one we experienced in the quarter. Purity and agility is key in maintaining sustainable growth of Yintech. We'll prioritize our business with shift in investor sentiment and give attention to asset classes will continue to leverage our diversifying business model to stay nimble. Adjusting client (inaudible) when needed in order to drive strong results with reasonable, effective and efficient use of resources.
(Foreign Language) Our team has made great progress across multiple fronts to reposition the Company for a transformative year in 2019 -- 2018. And as far as we can see, 2019 is full of opportunities, but also tremendous challenges ahead. We believe that maintaining capital discipline and returning capital to shareholders will be key component of our ongoing strategy. To that end, in the first quarter, Yintech completed ADS167,549 for total consideration of approximately $1.1 million repurchase of stock at market price.
As of March 31st, 2019, the Company had purchased an aggregate of 938,410 ADS. Yesterday, our Board of Directors authorized a new share repurchase program of up to $20 million with repurchase should begin on or after June 2, 2019. All purchased shares will be cancelled. We'll continue to execute this program to repurchase stock as market conditions allot.
(Foreign Language) With that, I will now turn the call over to Yvonne Young, our Investor Relations Director, to discuss our financial results for the first quarter of 2019 as well as providing guidance for the second quarter of 2019.
Yvonne Young -- Director of Investor Relations
Thank you, Mr. Chen. As Mr. Chen mentioned, we had a strong quarter results in Q1. Our net revenues rose 69% year-over-year to RMB454.3 million, net commissions and fees from securities services increased 172% year-over-year, thanks to the robust demand of our overseas securities services and significant contributions to our asset management team, which contributed RMB187 million. We returned to profitability with non-GAAP net income of RMB85.6 million, and non-GAAP EPS of RMB1.14. Since we transited to a comprehensive financial service provider in the second half of 2017.
Next I will walk you through our financial performance for the first quarter and provide guidance for the second quarter. Revenues for Q1 was RMB454.3 million or $67.7 million compared to RMB268.5 million in the same quarter last year and RMB295.2 million in the previous quarter. The year-over-year sequential -- and sequential increases was mainly attributable to increase in net commissions and fees from securities services as well as trading gains generated from our asset management business.
Net commissions and fees for the quarter were RMB246.5 million or $36.7 million, representing an increase of 1.6% year-over-year and a decrease of 9.8% sequentially. The year-over-year increase was primarily due to the increase in securities services partially offset by the decrease in commodities services. The sequential decrease was mainly resulting from lower trading volumes of commodities from the previous quarter.
Net commissions and fees from commodities services for the quarter were RMB123.7 million or $18.4 million, a decrease of 18.9% from the previous quarter, primarily as a result of decrease in customer trading volume for futures commodities.
Customer trading volume for commodities, which represent customer trading volume of spot and future commodities was RMB315.3 billion or $47 billion during the quarter, a decrease of 36.9% year-over-year and 23.8% from the previous quarter, primarily due to low volatility of gold in the first quarter. Effective fee rate for commodities for the quarter was 0.039% compared to 0.04% in the same quarter last year and 0.037% in the previous quarter.
Net commission and fees from securities services for the quarter was RMB122.8 million or $18.3 million, an increase of 1.6% from the previous quarter, primarily due to growth of overseas of securities -- brokerage services in the more favorable market conditions relative to the previous quarter. The robust growth demonstrates the effectiveness of the Company's strategy to expand its securities business and our ability to execute.
Expenses for the quarter were RMB306.4 million or $45.7 million, a decrease of 0.9% from RMB309.1 million in the same quarter last year, and a decrease of 70.6% in the previous quarter. The sequential decrease was mainly
attributable to a non-cash impairment charge of RMB639 million recognized in the fourth quarter of 2018.
Net income for the quarter was RMB75.1 million or $11.2 million, compared with net loss of RMB63.1 million in the same quarter last year and net loss of RMB732.2 million in the previous quarter.
Net income attributable to Yintech for the quarter was RMB69.2 million or $10.3 million compared to net loss of RMB50.3 million in the same quarter last year and net loss of RMB727.7 million in the previous quarter.
Diluted earnings per ADS for the quarter was RMB0.92 or $0.14, compared with diluted loss per ADS of RMB0.71 in the same quarter last year and diluted loss per ADS of RMB10.39 in the previous quarter.
Non-GAAP net income attributable to Yintech for the quarter was RMB85.6 million or $12.8 million, compared with net loss of RMB29.1 million in the same quarter last year and net loss of RMB106.8 million in the previous quarter.
Non-GAAP diluted earnings per ADS for the quarter was RMB1.14 or $0.17, compared with non-GAAP diluted loss per ADS of RMB0.41 in the same quarter last year and non-GAAP diluted loss per ADS of RMB1.52 in the previous quarter.
Now move to our balance sheet. As of March 31, 2019, we had RMB1.75 billion equivalent to $261.2 million in cash and cash equivalents compared with the RMB1.74 billion as of December 31, 2018.
Based on the information available as of the date, we expect our revenues from commissions, interest income and other revenues in the second quarter of 2019 will be in the range of RMB250 million to RMB270 million.
And revenues from trading loss will be in the range of negative RMB70 million to negative RMB100 million.
This concludes my prepared remarks for today's call. William, we are now ready for the Q&A session. Thank you.
Operator -- Director of Investor Relations
Thank you. And we will now begin the question and answer session. (Operator Instructions)
And today's first questioner will be Johnny Wong with Jefferies. Please go ahead.
Johnny Wong -- Analyst
Hi. Good evening, management, and thank you for taking the question. Congratulations on a very good quarter. I was just wondering, if you can give some color as to the traditional spot and futures market for commodities. It seems like that we are still -- must be a year to almost two years now, where we've seen sequential decline in trading volume and the volatility. Can management let us know what we should be looking for in order for that market to recover? Yeah. Thank you very much.
Yvonne Young -- Director of Investor Relations
Thank you, Johnny. Let me translate for Mr. Chen first.
(Foreign Language)
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer, and Chief Financial Officer
(Foreign Language) Well, you can see that, a very important component of the commodities business is gold -- spot (ph) gold, commodities. Traditionally, it's the business that contributed to most of our revenues, but since we transited to a comprehensive financial service provider, and on one hand, that we contributed some resources to other business. On the other hand, and more importantly is that, we witnessed the low volatility of the gold price in the recent two years. And if the volatility remains low at the present value -- at present level, we expect that the contribution from gold commodities will not increase as we expected. This is number one.
(Foreign Language)
(Foreign Language)
Yvonne Young -- Director of Investor Relations
Commodities. Johnny? Are your question about the commodities or spot commodities?
Johnny Wong -- Analyst
Actually, both. But I suppose mainly the spot commodities, because it seems like that is the -- we've seen a longer period of depressed volatility.
Yvonne Young -- Director of Investor Relations
Yeah. (Foreign Language) No. Okay. So just now we -- Mr. Chen addressed the question, that the main reason is the low volatility. Because this business is very much market-driven, and if the price remains low, and we can -- not much we can do. So that's why we allocated most of our resources to other businesses.
(Foreign Language) Yeah.
Johnny Wong -- Analyst
Okay. Can I just have a follow-up a question, and assuming if the volatility remains quite low. You mentioned earlier about streamlining the operations and maybe cutting the headcount. Would we expect more in the future in this particular segment, if volatility remains low, we will probably -- maybe slowly again cut down in the number of people and the related costs?
Yvonne Young -- Director of Investor Relations
(Foreign Language)
Let me summarize Mr. Chen's points. Well, we basically do not expect any further cutoff of our employees or teams. So basically, we already ended this process. This is number one point. Number two point is that as you can see that we are no longer a commodity focused Company since we made the transitions in the second half of 2017. And we so far have established five business lines, including spot commodities just now Mr. Chen mentioned, and the futures commodities business, which is also a very key component of our revenue contributors.
And the third one is the securities advisory services. And number four is our asset management business. And the last one is our overseas securities brokerage services. So we -- over the past two years, we have formed these abilities to swiftly and flexibly to allocate our resources and the human resources and the Company resources to deploy these resources among -- across the five business lines. That will enable our Company to remain in agility, flexibility and to be strong in resistance to the market volatility. So we believe the abilities we accumulated in the past years can enable us to grow stronger and more powerful in the future, which is very important to us, and which is also the areas that we are very proud of.
And so we believe that these five business lines, not just the spot commodity business, will enable the Company to grow stronger.
And just to add some more points to Mr Chen's remarks, well, so far, we have not just entered this, the spot business any longer. And if you look at our business revenue (inaudible) you will see that most of the revenue contributed from overseas securities services, which is why increase the 172% in this quarter. And also asset management business, although, it's a very new business, but it contributed a lot to our top line growth as well. So we believe that this new business carries a lot of potential for the business -- for the Company to grow to the next level instead of the traditional spot business. And we still have the team and the abilities to restart the business, if the market -- if the price of pickup again for the gold price.
Johnny Wong -- Analyst
Okay. Thank you very much. And very thorough answer. Thank you.
Yvonne Young -- Director of Investor Relations
(Foreign Language)
Operator -- Director of Investor Relations
(Operator Instructions) Okay. And there look to be no further questions at this time. So this will conclude our question-and-answer session as well as today's conference call. Just want to thank you all for attending today's presentation. You may now disconnect your lines.
Yvonne Young -- Director of Investor Relations
Thank you, operator. Goodbye.
Questions and Answers:
Duration: 40 minutes
Call participants:
Yvonne Young -- Director of Investor Relations
Wenbin Chen -- Co-Founder, Chairman, Chief Executive Officer, and Chief Financial Officer
Johnny Wong -- Jefferies -- Analyst
